We consider the proposed securities to have intermediate equity content until
their first call date in April 2018, because they meet our hybrid capital
criteria in terms of their subordination, permanence, and optional
deferability during this period.

We arrive at our 'BBB-' issue rating on the proposed securities by notching
down from our 'BBB+' long-term corporate credit rating (CCR) on Veolia. The
two-notch differential between the issue rating and the CCR reflects our
notching methodology, which calls for:

-- A one-notch deduction for subordination because the CCR on Veolia is
investment grade (that is, 'BBB-' or above); and

-- An additional one-notch deduction for payment flexibility to reflect
the fact that the deferral of interest is optional and that the CCR is
investment grade.

The notching of the proposed securities reflects our view that there is a
relatively low likelihood that Veolia will defer interest. Should our view
change, we may significantly increase the number of downward notches that we
apply to the issue rating, and more quickly than we might take a rating action
on the CCR.

In addition, in view of what we see as the intermediate equity content of the
proposed securities, we allocate 50% of the related payments on these
securities as a fixed charge and 50% as equivalent to a common dividend, in
line with our hybrid capital criteria. The 50% treatment (of principal and
accrued interest) also applies to our adjustment of debt.

KEY FACTORS IN OUR ASSESSMENT OF THE INSTRUMENT'S PERMANENCE

Although the securities are perpetual, they can be called at any time for tax,
gross-up, rating, or accounting events. Furthermore, Veolia can redeem them
for cash as of the first call date in April 2018, and every five years
thereafter. If any of these events occur, the company intends to replace the
instrument, although it is not obliged to do so. In our view, Veolia's
statement of intent also mitigates the likelihood of open market purchases by
the company, as do its financial strategies aimed at strengthening its balance
sheet and our forecast of the company's continued capital requirements as per
our current base-case credit scenario.

The interest to be paid on the proposed securities will increase by 25 basis
points in April 2023, and a further 75 basis points in April 2038. We consider
the cumulative 100 basis points as a material step-up, which is currently
unmitigated by any commitment to replace the instrument at that time. This
step-up provides an incentive for Veolia to redeem the instrument on the April
2038 call date.

Consequently, in accordance with our criteria, we will no longer recognize the
instrument as having intermediate equity content after the first call date in
April 2018, because the remaining period until its economic maturity would, by
then, be less than 20 years. However, we will classify the instrument's equity
content as intermediate until the first call date as long as we believe that
the loss of the beneficial intermediate equity content treatment will not
cause Veolia to call the instrument at that point. Veolia's willingness to
maintain or replace the instrument in the event of a reclassification of
equity content to minimal is underpinned by its aforementioned statement of
intent.

KEY FACTORS IN OUR ASSESSMENT OF THE INSTRUMENT'S DEFERABILITY

In our view, Veolia's option to defer payment of interest on the proposed
securities is discretionary. This means that Veolia may elect not to pay
accrued interest on an interest payment date because it has no obligation to
do so. However, any outstanding deferred interest payment would have to be
settled in cash if Veolia declares or pays an equity dividend or interest on
equal-ranking securities, and/or if Veolia or its subsidiaries redeem or
repurchase shares or equal-ranking securities. We see this as a negative
factor in our assessment of equity content. That said, this condition remains
acceptable under our rating methodology because once the issuer has settled
the deferred amount, it can choose to defer payment on the next interest
payment date.

Veolia retains the option to defer coupons throughout the instrument's life.
The deferred interest on the proposed securities is cash-cumulative, and will
ultimately be settled in cash.

KEY FACTORS IN OUR ASSESSMENT OF THE INSTRUMENT'S SUBORDINATION

The proposed securities (and coupons) are intended to constitute direct,
unsecured, and deeply subordinated obligations of Veolia. The proposed
securities rank junior to all unsubordinated obligations, ordinary
subordinated obligations, and prets participatifs, and are only senior to
common and preferred shares. As per our criteria, however, we only notch the
proposed notes down by one notch despite their deep subordination.

RELATED CRITERIA AND RESEARCH

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